Distributional issues in the operation of rights-based fisheries management systems

Marine Policy 25 (2001) 103}112

Distributional issues in the operation of rights-based "sheries management systems Olivier Guyader*, Olivier TheH baud Service d+Economie Maritime IFREMER BP 70, 29280 Plouzane, France Received 5 October 2000; accepted 27 November 2000

Abstract Rights-based management regimes are considered by economists as an important solution to the problems of excess capacity and biological over-harvesting of "sheries. In practice, adoption of such regimes, and particularly of those relying on individual quota allocations, has often met with resistance from within the "sheries concerned. A key reason for this resistance appears to be the distributional con#icts which arise in the process of implementing the regimes. An economic analysis of the nature of these con#icts in the di!erent contexts in which they have been observed is proposed. The approach centres on the way in which distributional con#icts can in#uence the operation of management systems and their impacts on "sheries, from the country to the individual "rm level. As an illustration, an analysis of the economic processes at "rm level is developed based on the simulation of a "shery managed under individual transferable quotas.  2001 Elsevier Science Ltd. All rights reserved. Keywords: Fisheries management; Rights-based management; Individual transferable quotas; Distributional issues; Economic simulation

1. Introduction `If economics is to advise policy, it seems di$cult to believe that the distributional issue can simply be swept aside. The issue of who is to receive the wealth associated with the "shery and the impact that this wealth will have on the regional and national economy is intimately linked to the kind of management system adopted and the way in which it is implemented. In formulating advice on the implementation of management systems, therefore, economics should consider the distributional as well as the e$ciency implications of policy optionsa ([31], p. 251).

* Corresponding author. Tel.: #33-2-98-22-43-65. E-mail addresses: [email protected] (O. Guyader), [email protected] (O. TheH baud).  This article is based on work presented at the `Workshop on the de"nition and allocation of use rights in European "sheries. Brest, France 5}7 May 1999a, EU concerted action on economics and the CFP. Coordinator: CEMARE, University of Portmouth, UK; and at the second conference UniversiteH de Bretagne Occidentale/UniversiteH du QueH bec a` Rimouski, Brest, 27}28 October 1999. The analysis presented in this article is that of the authors, and does not necessarily re#ect the views of Ifremer.

Conventional economic approaches to "sheries management build on the well-known model of free and open access renewable resources. This model is centred on the identi"cation of a level of e$cient operation, de"ned as that which provides the maximum net returns to inputs in comparison with other economic sectors. Analysts seek to determine the levels of harvest at which economic e$ciency will be achieved, and to identify policy measures needed to achieve such levels in the face of market failures. These failures originate from the lack of de"nition of rights to the resources, the resulting absence or imperfection of markets for them, and the externalities that this entails. A particular class of phenomena which these studies have allowed to explain is the race for a share of the catch, in "sheries where only total capture is being restricted. It is now well understood that such management measures result in ine$cient outcomes, where `too many vessels chase too few "sha. To restore e$ciency in these open-access managed "sheries, economists have suggested that "shing rights to resource #ows be explicitly allocated to individual harvesters [1]. By ensuring a "xed share of the catch to harvesters, such an allocation avoids the derby e!ect due to open access: it can generate e$ciency gains given that harvest activities can be planned temporally to take advantage of market demand

0308-597X/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved. PII: S 0 3 0 8 - 5 9 7 X ( 0 0 ) 0 0 0 4 1 - 5

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and, in some cases, of other "sheries, and given that operating costs can be reduced in the absence of `race for "sha conditions. A further step towards economic rationalisation of the "shery is to allow the subsequent allocations of "shing rights to be determined by bargaining between economic agents on an open market [2}7]. The implication is that, if agents can freely trade rights under conditions of perfect competition, these will end up in the hands of those who value them most, i.e. those who are most e$cient in using them, whatever the initial allocation. While economists have been advocating the adoption of such management regimes for some time, the cases in which explicit allocation of rights to "sh #ows have been established as a basis for the regulation of capture "sheries remain limited in number. In practice, plans to restrict entry and allocate rights to catch to a limited number of participants have often met with strong opposition. Scott [3] underlines the fact that, under various international treaties dating back to the beginning of the century, commissions were created with powers to coordinate national "shery controls. While these commissions often implemented national quotas, member states generally did not distribute these as individual quotas, and instead licensed vessels to participate in the international "shery [3]. More recently, evaluations of the consequences of extended "sheries jurisdiction have emphasised that increased national control over "sheries did not lead to the expected improvements in terms of limited entry [7}10]. Furthermore, where catch allocations have been established, an extensive length of time was needed before the opposition to the allocation schemes could be overcome [11]. The main reasons for these di$culties appear to be related to wealth distribution issues: as Macinko [12] underlines, any form of access control * or alteration of an existing access control regime * entails a speci"c distribution of bene"ts advantaging some participants

 This conclusion rests on a number of analytical and practical assumptions. From an analytical perspective, the idea of a market for "shing rights identical in principle to the market for a private good is usually seen by economists as the main alternative to `command and controla regulation of "sheries, or to intervention by a public agency based on less tractable taxing schemes. For the market to be e$cient requires that a number of conditions be met, including the divisibility and transferability of rights, and the presence of a su$cient number of separate owners to ensure competitive behaviour. Moreover, for the initial allocation to remain neutral, there must be no costs linked to the establishment, enforcement and exchange of rights, and no income e!ects related to trade in rights. From a practical perspective, it has been shown that the implementation of such rights-based regimes may involve certain di$culties (e.g. monitoring and enforcement problems), and spillover e!ects (e.g. bycatch and discards, or redirections of "shing e!ort to other "sheries), which may undermine the overall bene"ts expected from these regimes (see [17,18] for a discussion).

over others. The resulting con#icts have been recognised by some authors as a major obstacle in the way of e$cient management of ocean "sheries [13}16]. The nature of these con#icts has been interpreted following two general lines of analysis. The "rst line of analysis is in terms of equity and accepted rules of fairness. For example, "shery participants have been shown to prefer input regulations to the allocation of access rights in terms of output [15]. One reason advanced to explain this is that participants consider that it gives equal opportunity to every participant to use his skills and rewards the most skilful, which they see as fair [19,20]. The second line of analysis is in terms of rent-seeking behaviour [21]. For example, authors have shown that the ability to make decisions on wealth distribution can be inversely related to the degree of vested interests in the "shery. Thus, according to Christy [16] it is not surprising that countries with the most advanced catch allocation regimes are those where the "sheries are the youngest (New Zealand and Australia), while in areas where the history of "sheries is longest, and employment is well established (Northeast Atlantic), problems are much greater. Whatever the interpretation, it is thus widely accepted that distributional issues have a strong potential to a!ect management systems, and in particular those which set out to resolve the overcapitalisation problem. This paper investigates how economic analysis can help in understanding the implications of this for the operation of "sheries management systems. It is constructed in two parts. Part one reviews the existing literature on distributional issues in "sheries management, and develops a framework for the interpretation of these issues from an economic perspective. It then examines some of the empirical evidence in support of this framework at the international, national and #eet and "rm levels. Part two builds on the empirical evidence at #eet and "rm level, and develops a simple model of quota trading, in order to simulate the e!ects of various distributional scenarios on the management system.

2. I 0 Distributional issues in 5sheries management: an economic perspective A review of the literature shows that economists have generally been aware of the importance of social and political objectives * such as the safeguarding of lifestyles, the maintenance of employment in regions where labour mobility is low (and economic opportunities are scarce), or the stabilisation of coastal communities * in "sheries management. However, as Copes [22] notes, they have been reluctant to include these objectives in their analytical approach to "sheries management. Rather, such objectives have been included as

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components of a more general discussion of "sheries policy issues (e.g. [21,23}25]), or taken into account in empirical studies of the distributional implications of particular management systems [see [26] for a recent review and [27] for particular case studies]. Few papers seem to have been speci"cally devoted to the development of an analytical perspective on distributional issues in "sheries management. More than 20 years ago, Bromley and Bishop [28] suggested an analytical framework that sought to include distributional e!ects in the economic assessment of "sheries policy options. The authors stressed the fact that treating e$ciency aspects only would lead to incomplete assessments. Using standard welfare economics, they argued that, for both theoretical and practical reasons, a concept of distributionally preferred outcomes should also be taken into account, leading to the de"nition of a set of acceptable distributions for the selection of policy options. If one adopts this framework, the di$culty * which also seems to be the reason for the reluctance of economists to include distributional issues in their applied analysis * becomes how to assess the social acceptability of policy options from a distributional perspective. Copes [29] expresses the nature of this di$culty in the following terms: `In attempting to improve welfare we are faced simultaneously with trying to increase the size of &the pie' and distributing it in a socially more equitable (valuable) way. The task is rendered di$cult and ambiguous because of changes in size and composition of the value-measured pie consequent to interdependent changes in wealth and income distribution, production and market values. Pursuit of greater size of the pie (i.e. greater value of output) and socially more valuable distribution are interdependent, but not fully compatible, so that any notion of maximizing social welfare requires a designation to be made of an optimal trade-o! a (64). As Armstrong and Clark [26] state, the question of what is to be accepted as a socially preferred allocation of resources has developed into many diverging theories, and has led some authors at least to conclude that no universal criteria exist for the assessment of policy alternatives from this perspective: in practice, di!erent situations may call for di!erent distributional criteria.  For examples of existing analytical approaches, see [26,28}31].  In the context of "sheries, based on the Norwegian case, Armstrong and Clark [26] argue that there is a tendency to place greater emphasis on distributional issues when the harvested stocks are low, while there appears to be a shift towards e$ciency criteria when the stocks become large enough.

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Such di$culties were acknowledged by Bromley and Bishop [28]; the authors, however, suggested that, even if economics could not yield clear advice about distributionally preferable options, distributional implications of alternative courses of action should be made as explicit as possible in economic assessments. Given the practical importance of distributional issues, there is little doubt that such assessments would have the potential to be considered by "sheries managers as an essential contribution of economic studies. In this paper, a slightly di!erent route is adopted. Rather than focusing on distributional implications of policy measures, and the problem of their social acceptability, we start from the assumption that wealth distribution a!ects the ways in which management systems operate. The aim then becomes to represent the mechanisms at stake, and to develop an analytical framework which can be confronted to empirical research in order to gain a better understanding of how management systems behave. The starting point for this approach is to analyse the way in which we may need to modify representations of the behaviour of decision units targeted by management. We then turn to empirical evidence in support of this analysis, before developing a simple model to simulate the consequences of distributional issues on the operation of management systems.

3. Distribution and the behaviour of economic decision units As in other areas where economic analysis has been applied to environmental regulation, the study of "sheries policy has developed on the assumption that e$ciency is the guiding principle for selecting policy instruments, and has relied on the standard neo-classical model of rational behaviour to explain the acts of decision units targeted by management systems. The usual assumption is that these agents act as autonomous individuals, following a behavioural principle of pro"t/utility maximisation under technical/budget constraints. An important issue which has attracted fairly little attention is the fact that the decision units considered in these approaches most often are not individual people, but groups of various kinds * e.g. households, "shing "rms, producer organisations, recreation clubs, governmental organisations, states * which behave according to more or less structured principles of a collective nature. Recent work in marine "sheries [32,33], and in other environmental policy contexts [34] shows that for such economic agents, the implications of the rational behaviour assumption may vary, as the processes of organisation internal to these collective decision units may have a strong in#uence on their `externala, observable, behaviour. In particular, it may be that di!erent `sub-groupsa within the same collective pursue di!ering

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objectives, and predicting group behaviour will then require an understanding of the internal processes by which sub-group actions are co-ordinated. It then becomes di$cult to speak of the consequences of a particular management scheme on `the "shing industrya or `the "shermena without paying speci"c attention to the way in which these collective agents behave internally in the face of management measures. This is in contrast with standard economic texts on "sheries management where analysis is usually cast in the following terms:

the local #eet level. In each case, the de"nition of the relevant decision unit is changed to account for the scale at which decisions are being observed [33]: e.g. national #eets/states in the international arena, sectoral #eets/administrations in the national context, individual "rms at the local #eet level. In most cases, the decision units are collectives. It thus appears possible to discuss the assumptions underlying representations of individual behaviour in the di!erent contexts in which they have been applied. 4.1. Distributional ewects at the international level

`Well working community based "sheries management schemes and well working ITQ schemes share a common attribute. They will both give the 5shermen an incentive to view the "shery resources as long term assets, the conservation of which is in their self-interesta [7, p. 28, emphasis added]. Scott [3] stresses this point in his analysis of the opposition of members of the "shing industry to the implementation of ITQ systems. He acknowledges the fact that the term `industrya can be taken to describe individual "shermen, "shermen groups, or "shing companies, with di!erent consequences in terms of behavioural assumptions in each case. Furthermore, in the conclusion of an article which partly centres on distributional obstacles to the development of limited access in "sheries, Scott [15] recommends that economists turn to the ways in which to model and predict the problems and failures of "sheries groups, communities and co-operatives, rather than getting trapped in the economics of individualistic regulated "sheries. In the context of rights-based management systems, an issue of particular importance is the way in which distributional con#icts internal to economic decision units can a!ect the collective preferences of these agents, and their behaviour in the allocation process itself. While it is usually assumed that the structure of individual preferences and production functions is given in economic models of use rights allocation, this may result in links between the way in which wealth distribution issues are resolved within decision units and the external strategies adopted by these units. If such links exist, the main implication from a policy perspective is that the consequences of management measures which have wealth distribution e!ects may be less predictable, as they depend on the way in which these e!ects will be spread within, and between, economic agents, and how this will a!ect their behaviour. Several examples of this problem can be found in empirical case studies. 4. Elements of empirical evidence Standard "sheries economics reasoning has been applied at a variety of scales, from the international scene to

At the international level, decision units usually considered in "sheries economics studies are individual countries. Where game theory has been applied, these are assimilated to rational players, with similar behavioural implications as in the standard neo-classical framework [7]. Here, the distributional problem takes a speci"c form, as there is no supra-national authority which can enforce a speci"c allocation of rights. The issue is one of self-organisation through bargaining and leads to analysis in terms of expected losses from competition/gains from co-operation. Hannesson [35] provides an analysis of the Norwegian "sheries policy which illustrates the di$culties involved in making assumptions with regards to the behaviour of countries as economic agents on the international scene. According to the author, Norway's policy is a good example of the adoption by a country of economically ine$cient options, because of a deliberate trade-o! between e$ciency and equity at the national level. He states that the country's "sheries policy has primarily been one of supporting "shermen's incomes and maintaining the level of employment, within a policy process resting on extensive consultation of "shermen's organisations by government. Copes [29] and Hannesson [10] also stress the prominence of employment and "shermen's income in explaining the policy choices made by various countries including Canada in Northeast Atlantic "sheries. In a similar vein, Boncoeur and Mesnil [36] stress that the position adopted by European governments in the negotiation of Common Fisheries Policy measures is strongly in#uenced by concern for the shortterm minimisation of con#icts between "shermen, and between authorities and "shermen interest groups. 4.2. Distributional ewects at the national level At the national level, the distributional issue could theoretically be solved through the intervention of a central authority, acting as the sole owner of resources placed under its sovereignty and/or jurisdiction. In practice, as the above discussion shows, there will be several groups with di!ering interests in the "sheries, and the di$culties linked to the allocation problem will be replicated at this level. The development of rights-based

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management systems will encounter opposition from groups who feel their entitlement to the "shery (e.g. customary use, commercial harvesting, recreational "shing, general public interest) has not been taken into account, leading to the questioning of the acceptability and legitimacy of the management system. As Bromley [30] states, where there are several groups seeking permission to "sh, the usual suggestion would be to sell or lease "shing rights, thus extracting some of the rent for the state, and insuring that those who value "shing the most would access the "shery. Practice shows that the process is one of con#icts between potentially overlapping groups which claim an entitlement to "sheries resources, and that this process depends on how each group is itself organised as a collective and represented at the national level. Part of the problem then becomes that groups may not be totally homogeneous in their objectives, leading to a behaviour in the inter-group negotiation process that cannot easily be boiled down to e$ciency considerations. Various examples can serve to illustrate this. In understanding the position of `the "shing industrya, it may prove necessary to distinguish the processing sector from the catching sector. Matulich et al. [37] show that the advancement of ITQ policies in the United States, particularly the North Paci"c "sheries being considered for ITQ management, is blocked by the fact that traditional ITQ systems allocate rights only to the latter, ignoring interests of the former. Sharp [38] and Memon et al. [39] address current policy issues in the quota management system set up in New Zealand. They describe how the system has been forced to evolve from an initial allocation to commercial "shermen only, to an allocation between commercial "shermen, Maori "shermen and recreational interests. Other studies have focused on issues of regional development in the de"nition of national allocations of "shing rights. These studies show that important groups of interests to consider in the decision process are the local authorities whose aim is to maintain activity on their territory. Macinko [12] describes the important role played by such local authorities in the evolution of the management system for halibut and sable-"sh "sheries in Alaska. Charles [24] stresses the interdependence between e$ciency objectives and what he calls `socioeconomic sustainability considerationsa, in which he includes employment stability, or equitable wealth distribution with particular attention to the development of rural areas. Cunningham [31] also stresses the importance of regional development stakes in the process of national "sheries management. 4.3. Distributional ewects at yeet/xrm level At this level, again, the issue of how wealth is allocated between component interests in the "shery is encoun-

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tered. Decision units in this case are the "rms a!ected by the management system. If "rms themselves are considered as collectives, their behaviour can be a!ected by the way in which they are internally organised, and particularly by existing contracts and bargaining relationships between capital owners, quota owners and crews. Indeed, these have been shown to constitute a central factor in explaining the evolution "sheries under a number of ITQ regimes. The key variables that will usually serve to assess the nature of these bargaining relationships are the levels of employment and the remuneration of crew work. Recent reviews of ITQ systems around the world show that as a general rule, in individual quota schemes, catch shares have been given out to capital owners, allowing them to bene"t from windfall gains [40,29,41]. The distributional con#icts generally observed in these cases relate to phenomena such as quota aggregation, reduction in employment of "shermen and increased competition on the labour market, increase in the intensity of work for active "shermen, and/or changes in the remuneration of "shing jobs. Below, we consider published evidence of employment and remuneration e!ects. In terms of employment ewects, cases such as the southern blue"n tuna "shery in Australia [42,43], the halibut "shery in British Columbia [44], or the surf clam and ocean quahog (hereafter SCOQ) "sheries in the United States [45] do show short-term sharp reductions in #eet sizes and levels of employment. In the latter "shery, which is subject to no restrictions on quota trading, vessel numbers have fallen from 128 to 53 between 1990 and 1994 while labour has declined by 30% over the same period [45]. In the Canadian halibut "shery, decrease in employment (in terms of numbers of "shermen) has reached 32%, composed of an estimated 18% reduction in crew size on active vessels and a 14% decrease due to crews being displaced from non-active vessels [44].  As Wilen et al. [46] state: `Although vessel owners have been primary recipients of quota in most cases, the character of many programs has been in#uenced to some degree by concerns of crew members about how ITQs might change circumstances for them. Labor unions representing crew members have been particularly active in negotiation over system design with the aim of reducing adverse impacts on crew labora (p. 331).  In certain cases, concern for such distributional implications within #eets has resulted in the imposition of constraints on quota trade, in order to limit quota-aggregation possibilities. On the political scene, the con#icts surrounding these distributional issues at "rm level have often led to crisis, as is illustrated by the strike of Icelandic "shermen in 1994 and 1995 to protest against the ITQ system in this country.  The Sable"sh and halibut longline "sheries o! Alaska are exceptions, as in these "sheries, crew members also received shares of the TAC [47].  In this case, the authors stress that it may not have meant a reduction in overall employment in the "shery, measured in terms of working time, as the reduction in the number of "shermen employed may have been compensated by spreading their activity over longer periods of time.

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Another phenomenon which the Canadian halibut case serves to illustrate is the fact that, if individual quotas are established in a "shery in which `labour stu$nga occurs, this will give rise to higher rates of labour utilisation, where active crews work much more days and longer hours, causing complaints and decreasing work safety at sea in some cases. Such phenomena are stressed in several case studies: e.g. the Nova Scotia mobile gear "shery [48], the o!shore ground"sh enterprises in Canada [49], the SCOQ "shery [11], or the Dutch cutter #eet [50]. The second important e!ect to consider is the evolution of remunerations observed where individual quota regimes have been implemented. In theory, as stated by Wilen and Casey [46], regimes in which quotas have a positive value could lead to alterations of share systems, in a manner which is di$cult to predict given the close relationships (or identity) between vessel owners and skippers frequently observed in "sheries. According to some authors at least, there is a possibility that returns to crews may fall if share agreements change following the integration of costs of purchasing quotas and opportunity costs of using them. Thus according to Squires et al. [51]: Wages to crew may change if owners readjust the share system to enhance their pro"t or to maintain their position within increasingly competitive industry or to account for the cost of purchased quotas. (2) Returns to crew may fall if crew-share agreements change to re#ect the cost of obtaining ITQs and the opportunity cost of using them This has been observed in a number of instances. In the SCOQ case, vessel owners generally reduced crew shares, justifying this in terms of having to cover the cost of quota purchases [11]. Reductions in crew shares have also been noted by these authors on Nova Scotia vessels. In the same "shery, other practices by owners have consisted in transferring lease fees to crews, or in charging the cost of quotas as a percentage of the value of landings at ex-vessel price. This behaviour is also common in Iceland where long-term contracts have been negotiated between integrated "shing companies and inshore vessel owners with little or no quota. The latter sell their catch to the former at a price lower than the auction price, that takes into account the lease paid to quota-

 The extent to which this reduced quality of life is compensated by better wages is not clear in these studies.  The changes in remuneration discussed here are not only observed in ITQ regimes, but more generally in any transferable rights system. Thus, in the Canadian west coast herring "shery, managed by transferable licences, each "sherman must pay an access fee (10,000 $) to purse seine vessel owners in order to be employed in the "shery; this advance is used by vessel owners to cover the cost of the "shing licence [52].

owners [53]. As a result of such mechanisms, up to 50% wage decreases have been observed in the Icelandic case, in a context of limited employment alternatives for "shermen [54]. Copes [29] also notes that in other cases where, as previously discussed, active "shermen have been working for longer periods of time under ITQ regimes, they have also had less spare time to "nd complementary incomes from other activities. Following the implementation of ITQs, there have thus been instances in which the share of returns going to crew labour has been reduced. As observed by Casey et al. [44], such evolutions may be interpreted as the logical consequence of a reduction in the importance of labour relative to other inputs * and in particular of rights to catch * on "shing vessels. In the context of internal bargaining within "shing "rms, it may also be interpreted as the outcome of con#icts between capital owners and crew members in the allocation of the real or opportunity costs of using quotas. Unlike the above cases, the shift to ITQs in the British Columbia halibut "shery seems to have led to an increase in crew remunerations for most of the remaining "shermen [46]. This is notwithstanding the fact that overall crew shares have been reduced, and results mainly from the fact that the ITQ regime has allowed to spread landings over the year leading to changes in product handling and quality, and to higher ex-vessel prices. Overall, it thus appears that ITQ regimes create new incentive schemes for "rms that may lead to new relations of production and organisation between crews, capital owners and quota owners. This re-organisation process with distributional consequences * or distributional constraint with organisational consequences * can be seen to play an important role in the capacity for "shing "rms to compete for quotas and in the operation of the quota market. To anticipate the consequences of individual quota regulations requires that these organisational problems be taken into account. Next, a simple model is developed in order to simulate these dynamics.

5. II 0 A simple model at 5rm level 5.1. A standard model of ITQ regime We assume the exploitation of a single species "shery by a #eet of N "shing "rms. The #eet is split in four sub-#eets (i "1,2, 4) in order to consider di!erences in productivity and costs of inputs. Each "rm (vessel) representative of sub-#eet (i) is able to catch the quantity of "sh y de"ned by a stock-#ow relationship of the followGR ing form: y "q E?G B GR G GR R ¸ "E /url. GR GR

∀i"(1,2, 4),

(1) (2)

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Crew size ¸ is variable only within a restricted range GR and is a function of the rate of labour utilisation (url) and quasi-"xed factors. The same opportunity cost of labour (ocl) applies to all crew members. E is a scalar and represents variable inputs. B is an GR R index of biomass and q is assumed to vary according to G vessel category in order to introduce economies of scale.
captures the existence of decreasing marginal yields. G Firms are price takers with p the price of landings, c the unit price of variable inputs and (oc ) the opportunity G cost of capital. The pro"t function for each representative "rm can be written as follows:  "py !cE !oc . (3) GR GR GR G It is assumed that the management authority decides to "x and share a TAC, allocated free of charge to "rm owners in the form of individual quotas in weight: , y " !¹AC  "1, (4) GR G R G G where y is the individual quota endowment of each GR representative "rm and  the individual "xed share of G the TAC. Standard theory shows that this new constraint on the production possibility set induces the "shing "rm to adjust variable inputs in order to minimise its costs. In the case of quota transferability and especially of quotaleasing markets, each owner can buy or sell quota units in order to match his quota with the desired (optimal) production level. Let l be the rental price of one unit of R quota in current period. l d is the cost (earning) of R GR purchasing (selling) quotas where d "yH!y is the GR GR GR individual net demand for quota. l y is the opportunity R GR cost of using quota. As p!l represents the net marginal bene"t of harR vesting an additional unit, it is interesting for "rms to buy an additional unit of harvest right as long as this net marginal bene"t is higher than or equal to the marginal cost of producing this extra unit. When the net marginal bene"t equals the marginal production cost (i.e. marginal pro"t is equal to the quota lease rate), net demand clears and the quota-leasing market is in equilibrium. Clearly, transferability leads to Pareto e$ciency if the quota market is perfect. In this model, a walrasian process of adjustment being assumed, the situation of all "rms is improved * and all potential gains from trade are exhausted * after trading. At equilibrium, the di!erence between landing price and marginal production cost measures the rental market price, and is maximum at the minimum of the average cost curve. Standard e!ects of quota trade thus modelled are the equalisation of marginal production costs between "rms, and the increase in individual and global

 Perfect divisibility of quotas is assumed.

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quasi-rents at equilibrium. Note that the same results would appear in the case of individual transferable licence programs with for example, transactions on days at sea. In this case; harvest rights become a new production factor without which it is not possible to produce and the quota price (or the transferable right to use input) represents the remuneration of rights services. Results of a simulation run, using the software Stella, are presented in Tables 1}3. Note that the rental price for quota depends on global demand and supply (TAC) and that it does not truly capture resource rent but quasi-rent when all production factors are not at their optimal level. 5.2. An extension of the model to consider short-term distributive ewects within xrms Although this model provides an interesting tool to assess wealth and distributive consequences of the implementation of ITQ schemes at #eet level, it fails to consider within "rm distributive aspects. The weakness of the analysis on this issue comes from the fact that the "rm is considered as a black box. In most "sheries, the remuneration of labour and capital services is based on a share system [55]. While many systems exist in practice, they all have the common objective to provide economic incentives through revenue sharing [56], in the context of a relationship which can be analysed from a principal}agent perspective. Under share systems, crew members may collect part of the rent or quasi-rents (e.g. infra-marginal rents) over their opportunity cost. Let us assume that crew remuneration (Cr) depends on the value of catches ( py) minus shared costs (cE): Cr " (py !cE ) GR G GR GR with

(5)

0) )1. (6) G Furthermore, the decision units involved in trading on the quota market are assumed to be the capital owners, to whom individual rights are allocated initially, and who make decisions about the optimal catch and related quota purchases (sales). Sensitivity analysis on model parameters allows us to assess the e!ects of changes in the share rate () and the (url) on the evolution of "rm performance on the market for quota and on employment. Results of such an analysis are presented in the following table.  Thus, throughout 1994}1995, the rental price for cod quotas in Iceland has been relatively high (estimated at 70}80% of the average price of cod catches by Eythorsson [53], and it appears that, although this can be partly attributed to the #eet rationalisation process through ITQ implementation, it has been strongly in#uenced by TAC reductions over this period due to the poor state of the stocks.

O. Guyader, O. The& baud / Marine Policy 25 (2001) 103}112

110

Table 1 Comparison of "rm situation before and after quota exchange parameters used in simulation: a"0.8/q1"0.7/q2"0.8/q3"0.9/q4" 1/c"1/Oci"10/¹AC"40

Firm Firm Firm Firm

1 2 3 4

Initial quota allocation

Initial surplus

Final quota allocation after trade

Final surplus after trade

10 10 10 10

51.13 72.48 88.57 101.09

3.2 6.3 11.3 19.2

67.64 75.65 88.83 109.37

Rental price at equilibrium

6.92

Table 2 Sensitivity analysis on TAC sharing between "rms (¹AC"40)

Firm Firm Firm Firm

1 2 3 4

Initial Final quota allocation allocation

Final surplus

15 15 5 5

109.17 117 109.17 117.17

3.2 6.3 11.3 19.2

Rental price equilibrium

Initial allocation

Final quota allocation

Final surplus

4 16 4 16

3.2 6.3 11.3 19.2

33.04 129.09 54.23 157.82

6.92

Rental price at equilibrium

6.92

Table 3 Sensitivity analysis on TAC level (equal distribution of quotas) ¹AC"30 Final allocation Firm Firm Firm Firm

1 2 3 4

¹AC"40 Rental price level

2.40 4.70 8.50 14.4

Final allocation

¹AC"50 Rental price level

3.20 6.30 11.30 19.2 7.82

As shown in Table 4, a higher share rate for representative "rm 4 leads to decreasing willingness to pay for quota units and decreasing optimal production for this "rm, and to a change in its competitive position on the market for rights. As a consequence, the allocation of TAC between "rms and the rental price for quota are also modi"ed. Firm willingness to pay for quota units depends on their ability to reduce unit variable costs and especially crew remuneration: obviously, willingness to pay for an additional unit of quota will be larger where the crew supports part of the cost. The smaller the crew rate, the higher the willingness to pay for quota, which depends on the marginal cost of production (including marginal cost of crew remuneration). Even if "rm 4 is the most e$cient from a technical point of view, the weakness of its capital owner in bargaining with the crew can a!ect its bargaining power on quota markets. The implication is that the

Final allocation

Rental price level

4.10 7.80 14.1 23.9 6.92

6.17

most cost-e$cient operators on quota markets will likely be those who, not only are the most e$cient in terms of "shing operations, but also who have best been able to reorganise their internal structure, particularly as regards contracts between vessel owners and crews. We may expect that such a re-organisation should proceed all the more quickly as the TAC is restrictive, leading to increased competition between "rms in order to remain in the "shery. From a comparative statics perspective, each scenario leads to an optimum given the internal institutional structure of existing xrms, and it is thus di$cult to make comparisons between them on e$ciency grounds. From a dynamic perspective, we can expect that there will be an incentive for capital and quota owners to switch from scenario 4 to 1, in order to increase their rent #ows. The nature of this process, which involves bargaining between owners and crews, would thus need to be modelled in

O. Guyader, O. The& baud / Marine Policy 25 (2001) 103}112

111

Table 4 Sensitivity analysis on share rate and optimal production Share rate  "0.3 for i"1, 2, 3 G

 "0.3 ?

 "0.333 @

 "0.367 A

 "0.4 B

Firm 1 production Firm 2 production Firm 3 production Firm 4 production Rental price Quota value Crew rent Vessel owner rent Total rent

3.2 6.3 11.3 19.2 4.84 239.0 102.9 194.6 536.5

3.4 6.6 11.9 18.1 4.74 233.4 107.9 189.6 530.9

3.5 6.9 12.5 17.1 4.62 228.0 112.7 184.8 525.5

3.7 7.2 13.1 16.0 4.51 222.0 116.9 180.6 519.5

level level level level

Parameters: opportunity cost of labour"0. Ideally, "shermen remuneration (crew remuneration/number of crew members) should not decline under a positive opportunity cost of labour (ocl) in the economy or in alternative "sheries.

Table 5 Sensitivity analysis on rate of labour utilisation

Initial labour Final labour

application of a similar approach to the analysis of management systems at national, and international levels.

url"10

url"13.3

url"16.7

url"20

8.93 8.37

6.70 6.28

5.36 5.02

4.47 4.19

url: utilisation rate of labour.

order to fully represent the evolution of the management system. Sensitivity analysis on the rate of labour utilisation can also be carried out. By construction of the model, factor rationalisation through quota adjustment yields lower levels of employment (see Table 5). A further step here would be to make url an endogenous variable in the model, with maximum and minimum constraints. The simulation would then allow to explore changes in this variable as a function of the various policy options and allocation scenarios considered. Such a simulation model has been applied to a real "shery * the French driftnet albacore "shery * using empirical data [32,57]. Results are similar to those described above. 5.3. Further developments Although this model of an individual quota regime and the straightforward sensitivity analysis on parameters that relate to distributional issues within "shing "rms provide some insight on how such issues might a!ect the overall operation of the management system from an economic perspective, it remains a very simpli"ed approach of the dynamics which need to be taken into account for such assessments in practice. Additional work in modelling organisational and bargaining relations within "rms and within the "shing industry certainly appears as an interesting direction for future research in this area. Useful insights could also be gained from the

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